---
type: source
title: "Better Markets argues prediction markets ARE gambling — the strongest counter-case to CFTC exclusive jurisdiction"
author: "Better Markets"
url: https://bettermarkets.org/analysis/prediction-markets-gambling-the-cftc-regulation-facts-fiction-the-law/
date: 2026-02-00
domain: internet-finance
secondary_domains: []
format: essay
status: enrichment
priority: high
triage_tag: claim
tags: [prediction-markets, gambling, regulation, CFTC, gaming, counter-argument, CEA]
processed_by: rio
processed_date: 2026-03-18
enrichments_applied: ["futarchy-governed entities are structurally not securities because prediction market participation replaces the concentrated promoter effort that the Howey test requires.md", "polymarket-achieved-us-regulatory-legitimacy-through-qcx-acquisition-establishing-prediction-markets-as-cftc-regulated-derivatives.md"]
extraction_model: "anthropic/claude-sonnet-4.5"
processed_by: rio
processed_date: 2026-03-19
enrichments_applied: ["polymarket-achieved-us-regulatory-legitimacy-through-qcx-acquisition-establishing-prediction-markets-as-cftc-regulated-derivatives.md", "futarchy-governed entities are structurally not securities because prediction market participation replaces the concentrated promoter effort that the Howey test requires.md"]
extraction_model: "anthropic/claude-sonnet-4.5"
---

## Content

Better Markets (financial reform advocacy group) presents the most articulated counter-argument to CFTC's prediction market jurisdiction claim.

**Core Argument: Prediction Markets = Gambling**
1. **Functional equivalence:** "These activities are no different in substance than gambling at a casino, sportsbook or corner bookie" — allowing wagers on elections, sports, and pop culture events
2. **Structural similarity to casinos:** Operators claim they're "not the house" but merely take fees — but casinos take poker pot percentages too, and the mechanism doesn't change the underlying activity
3. **No legitimate hedging function:** Sports and entertainment contracts cannot serve as genuine financial risk-management tools

**The CEA Section 5c(c)(5)(C) Argument:**
- 2011 CFTC "flatly banned all event contracts that involve war, assassination, terrorism, gaming, or any activity unlawful under state or federal law"
- Sports betting falls within "gaming" — current sports wagering contracts violate this prohibition
- Congressional intent evidence: Senator Blanche Lincoln stated the intent was NOT to "enable gambling through supposed 'event contracts'" — specifically named sports events
- Kalshi's own prior admission: When defending election contracts, Kalshi dismissed sports betting as entertainment with no "independent significance" and admitted "Congress did not want sports betting conducted on derivatives markets"

**What Would Survive the Gaming Classification:**
Better Markets implies legitimate financial derivatives would require:
- Genuine hedging utility and independent financial significance
- Connection to actual commodities or financial risks
- Legitimate commercial purpose beyond pure wagering

**CFTC Institutional Mismatch:**
- CFTC polices multi-trillion derivatives markets — gambling enforcement diverts resources
- Agency lacks "experience, expertise, personnel, technology or budget to police gambling in all 50 states"
- Democratic accountability gap: "Private profit maximizing financial firms should not be allowed to unleash unregulated nationwide gambling"

## Agent Notes
**Triage:** [CLAIM] — Counter-argument to our existing regulatory defensibility thesis. The strongest version of the case against prediction markets is:
1. The CEA already prohibits gaming contracts (section 5c(c)(5)(C))
2. Sports prediction markets ARE gaming by any reasonable definition
3. The CFTC lacks institutional capacity to regulate gambling
4. Kalshi's own prior statements undermine its current position

**Why this matters:** This is the steelman of the opposition. For the KB, we need to engage with this argument directly rather than assuming CFTC exclusive jurisdiction will prevail. Better Markets is influential with Democratic lawmakers and regulators.

**What surprised me:** Kalshi's own prior admission that "Congress did not want sports betting conducted on derivatives markets." This is a devastating admission-against-interest that state AGs will cite. It also reveals Kalshi's strategic pivot: they initially positioned AGAINST sports contracts to win election contracts, then pivoted to INCLUDE sports contracts to grow their market.

**KB connections:**
- Directly challenges Belief #1 (markets beat votes for information aggregation) — if the legal system classifies prediction markets as gaming rather than information aggregation tools, the epistemic argument doesn't save them
- Challenges Belief #6 (regulatory defensibility) — the "gaming" prohibition is a statutory constraint that mechanism design can't solve
- The "hedging function" test is interesting for futarchy: futarchy governance markets DO have a "legitimate commercial purpose" (corporate governance) and ARE connected to financial risks (token price). This may be the key distinction.

**Extraction hints:** The hedging function / commercial purpose test may be the legal framework that distinguishes futarchy governance markets from sports prediction markets. Extract this as a potential claim: "Futarchy governance markets may survive the gaming classification because they serve a legitimate corporate governance function that sports prediction markets lack."

## Curator Notes
PRIMARY CONNECTION: [[futarchy-governed entities are structurally not securities because prediction market participation replaces the concentrated promoter effort that the Howey test requires]]
WHY ARCHIVED: Steelman of the opposition — the strongest articulated case against prediction market legality, with implications for how futarchy governance markets should position themselves legally


## Key Facts
- The CFTC issued a rule in 2011 under CEA Section 5c(c)(5)(C) that 'flatly banned all event contracts that involve war, assassination, terrorism, gaming, or any activity unlawful under state or federal law'
- Senator Blanche Lincoln stated the intent was NOT to 'enable gambling through supposed event contracts' and specifically named sports events
- Kalshi previously admitted 'Congress did not want sports betting conducted on derivatives markets' when defending election contracts
- Better Markets is a financial reform advocacy group influential with Democratic lawmakers and regulators


## Key Facts
- The CFTC issued a rule in 2011 under CEA Section 5c(c)(5)(C) that banned all event contracts involving war, assassination, terrorism, gaming, or unlawful activities
- Senator Blanche Lincoln stated legislative intent was NOT to enable gambling through event contracts and specifically named sports events
- Kalshi previously admitted 'Congress did not want sports betting conducted on derivatives markets' when defending election contracts
- Better Markets is a financial reform advocacy group influential with Democratic lawmakers and regulators
